SEIA took a more rigorous look at the
relationship among inventories, surplus capacity, and crude oil price.

SFirst, we explored the relationship between
world balance represented by inventories and price, and as expected, the
model, represented by the blue line, falls short this year.Many other analysts seeing the same thing
began theorizing what might be driving prices up further.

SWhen we take surplus crude oil production
capacity into account along with inventories, we explain most of the
difference (to within $3-$5), which is well within the uncertainty of the
model.